Florida Tax Attorney Blog

As with every tax season, this year's tax season comes with both its good and bad. While the tax deadline was extended to April 18, 2011, some taxpayers must wait until mid to late February to file their taxes.

On December 23, 2010 the IRS warned that because of the late enactment of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (PL 111-312), which extended various expired provisions, it would need time to reprogram its systems and update Schedule A. As a result, taxpayers who itemize deductions on Schedule A and those taxpayers who take certain extended deductions would not be able to file their returns at the start of tax season. Those taxpayers who need to wait are:

1) Taxpayers Claiming Itemized Deductions on Scheduled A.
2) Taxpayers Claiming the Higher Education Tuition and Fees Deduction; and
3) Taxpayers Claiming the Educator Expense Deduction.

Additionally, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act also extended those deductions for 2011 along with a number of other tax deductions and credits for 2011 and 2012.

Except for those asked to wait to file, the IRS will begin accepting e-file and Free File returns on January 14, 2011.

Every person who owns and resides on real property in Florida on January 1 and makes the property their permanent residence is eligible to receive a homestead exemption up to $50,000. The first $25,000 applies to all property taxes, including school district taxes. The additional exemption up to $25,000, applies to the assessed value between $50,000 and $75,000 and only to non-school taxes.

When filing for the first time, the homeowner should be prepared to answer these questions:

1. In whose name or names was the title to the dwelling recorded as of January 1st?

2. What is the street address of the property?

3. How long have you been a legal resident of the State of Florida? (A Declaration of Domicile or Voter's Registration will be proof of date before January 1st).

4. Do you have a Florida license plate on your car and a Florida driver's license?

5. Were you living in the dwelling on January 1st (January 1st is the date on which permanent residence is determined)?

The deadline for filing without a fee is March 1st. All applicants must have:

1. A valid Florida driver's license (a license valid only in the state of Florida is not acceptable); and

2. A Florida voter's registration or a notarized, recorded Declaration of Domicile.

The Internal Revenue Service developed and enforces rules designed to discourage U.S. investors from deferring tax on investment income by holding passive investments through non-U.S. companies that do not distribute their earnings currently. The rules impose significant additional tax burden on gains and certain dividends derived from investments in a Passive Foreign Investment Company (PFIC) and are very broadly drafted and construed. IRC 1297(a).

PFIC rules extend anti-deferral rules to certain foreign corporations, regardless of the level of U.S. stock ownership. A U.S. person who owns any percentage of PFIC shares is potentially subject to these rules.

A foreign corporation is generally a PFIC if it meets either the Income Test (IRC 1297(a)(1)) or the Asset Test (IRC 1297(a)(2)). To meet the Income Test, at least 75% of its gross income for the tax year is passive income (defined in IRC1297(b)). To meet the Asset Test, at least 50% of its assets by value generate (or are held for the production of) passive income (determined under 1297(e)). For these purposes, passive income includes interest, dividends, certain rents and royalties, and gains from the sale of investment property.

It is not difficult for a foreign corporation to be classified for a taxable year as a PFIC under either of the above-mentioned tests. The Income Test is based on gross income, rather than net income, and the Asset Test is also extremely broad.

The PFIC rules create a punitive scheme for taxing deferred income, by eliminating the lower rates on capital gains and any deferral benefit through the imposition of the interest charge.